• English Site
• > Business
• > Economic and Financial Crisis

Brussels Addresses Banking Crisis

Banks Worried About EU Plans for Tighter Credit Rules

The European Commission intends to respond to the international financial crisis by imposing tougher rules on banks' operations. The financial sector is worried that the plans will restrict lending and make credit more expensive.

The European Union is ramping up the pressure on the financial sector with plans to tighten regulations under which European banks can invest in global credit markets, the Financial Times Deutschland reported on Monday.

The EU wants to only allow banks to buy so-called securitized loans -- loans repackaged as securities -- if the seller continues to hold 10 percent in his books, the newspaper reported, citing an internal European Commission draft for new bank equity capital rules.

EU Internal Market Commissioner Charlie McCreevy wants to implement the rules in the autumn, the report said. EU governments and the European Parliament have yet to approve the plan.

The plan has alarmed the financial industry which fears it could restrict lending in Europe and drive up the price of fresh capital for companies, homebuyers and consumers. Europe's capital market is at risk of becoming over-regulated, bank representatives have warned.

They are also worried about EU plans to limit the size of loans one bank can grant to other banks. The draft plan envisages requiring banks to commit no more than a quarter of their equity capital for such loans. That could lead to new liquidity shortages in inter-bank dealings, financial sector associations are warning.

cro/AFP/ddp